Rules On Gift Funds For Down Payment On Home Purchase
Gift funds for down payment on home purchase is allowed by both FHA and Fannie Mae and Freddie Mac, however, there are rules and regulations with regards to gift funds and each loan program has their own lending guidelines on gift funds. One of the major things mortgage underwriters will scrutinize is whether the gift funds are an actual gift and not a loan. Gift funds needs to be a gift by a family member and cannot be paid back. Many families help each other out. For example, a parent may give their children gift funds to purchase a home. A grand parent may give their grandchild gift funds to be used towards the down payment of their home purchase. A couple may get gift funds as their wedding gift from family or close relatives where they can use that as a down payment for their home purchase.
How Underwriters View Gift Funds For Down Payment On Home Purchase
Mortgage underwriters are the folks who will analyze your mortgage application and will decide whether to issue a mortgage loan approval or mortgage loan denial and is probably the most important person in the mortgage approval process because ultimately, the mortgage underwriter is the person who issues the clear to close . A clear to close means that the mortgage lender is ready to fund the loan. The mortgage underwriters will review your credit, credit scores, credit history, past bankruptcy, past foreclosure, past short sale, divorce decree, child support payments, alimony, income, assets, and all of your liabilities. When a mortgage underwriter reviews your assets, they will especially look for that you have enough funds to close on your home purchase transaction or if it is a refinance mortgage, that you have enough funds to close on your refinance mortgage loan. When mortgage loan underwriters see that you have enough funds to close, the next thing they will look at is that those funds are your money and not a gift or cash deposits. Mortgage underwriters will be reviewing 60 days of your bank statements and will pay special attention of large deposits and irregular deposit in your bank account and/or bank accounts. The way mortgage underwriters view gift funds is they want to make sure that gift funds are actual gifts and not loans. Reason behind this is mortgage lenders do not want you see struggle making your mortgage payments plus a personal loan monthly payment that you got for your down payment. This can cause a strain on the homeowner and increases the chances of the new home buyer being late or even defaulting on their new mortgage loan.
How Gift Funds For Down Payment On Home Purchase Works?
There are procedures on how gift funds for down payment on home purchase works. A family member cannot just give a home buyer cash money and they just deposit it in their bank account. Before you accept gift funds for down payment on a home purchase, ask your loan officer for directions. You loan officer will tell you that gift funds for down payment needs to be sourced. The donor of gift funds for down payment on your home purchase needs to complete a gift letter which states that the gift funds is not a loan and that the gift funds does not need to be paid back. The donor of the gift funds needs to provide 30 days of the donor’s bank statement showing that the gift funds was seasoned in the donor’s bank account for at least 30 days. The gift funds leaving the donor’s account needs to be reflected in the bank statement of the donor. The recipient of the gift funds needs to provide the copy of the check, the deposit slip, and a new bank transactional history print out that is signed, dated, and stampled by the bank teller reflecting the funds in the bank account of the recipient.
The following information needs to be on the gift letter.
The donor’s name, address and phone number
- The gift funds donor’s name, address and phone number
- The gift funds donor’s relationship to the home buyer/recipient
- The dollar amount of the gift funds for down payment
- The date the funds that transferred to recipeint.
- A statement from the gift funds donor that the gift funds is not a loan and a gift and that no repayment is not expected
- The gift funds donor’s signature
- The address of the property being purchased
Amount Of Gift Funds For Down Payment On Home Purchase Depends On Loan Type
The amount of gift funds for down payment on home purchase in relation of how much of your own money that you need to put down will depend on the type of loan program it is. Here are the restrictions of the amount of gift funds you can receive depending on the type of mortgage loan program.
Conventional Loan Programs
- With Conventional Loans, if you are buying a home and putting 20% down payment or more, than the whole amount of the down payment can be gifted.If you put down 20% or more, it can all be from a gift.
- If you are putting less than a 20% down payment, part of the gift funds for down payment can be gifted, however, part of the down payment needs to be from your own funds. The minimum amount of your own funds depends on the type of loan you apply for.
- Gift funds for down payment is only limited to primary owner occupant homes and second homes. You cannot have gift funds for investment home financing.
FHA Loans And VA Loans
- Both FHA Loans and VA Loans allows 100% gift funds for down payment on home purchases. Even though there are no down payment requirements for VA Loans, those wishing to put money down on their home purchases on VA Loans can get all of the down payment for home purchase as gift funds.
- If you have credit scores between 580 FICO and 619 FICO, 3.5% of your down payment needs to be from your own funds
- All FHA Loans and VA Loans are for primary owner occupant homes only so you can only use gift funds for owner occupant residences only.